Buying A Newbuild Property – What Happens If My Mortgage Offer Expires
…before the property is complete?
When you purchase a new build property the developer will either give you a fixed completion date or completion will be on notice. Completion on notice means you will not be given a date of completion on exchange of contracts but your solicitor will be informed when the property is ready for occupation and the new build guarantee provider has issued their cover note confirming that the property is structurally complete. Mortgage monies cannot be requested until such time as the cover note has been issued.
Once notice is served with the cover note you will then have a specified number of days (as per your contract, usually 7 or 10 working days) to obtain your mortgage funds from your lender and you can arrange to do your final inspection.
Completion on notice pitfalls
If completion is to take place on notice the Developer will not agree a longstop date, so if the construction of the property is delayed beyond their projected date, you will not be in a position to take any action or withdraw from the transaction. The delay would have to be a court’s interpretation of “unreasonable” which could be a delay as long as twelve months, so this does need bearing in mind. If the builder is a member of NHBC, Premier Guarantee or LABC there will be additional contractual requirements regarding the Consumer Code for Home Builders which your solicitor will explain to you.
Your mortgage offer will have an expiry date and you need to complete on your purchase by the expiry date.
What happens if you cannot complete before the mortgage offer expires
If you are not in a position to complete before your mortgage offer expires because construction has been delayed, you may be able to ask the lender for an extension on the mortgage offer. An extension on the current mortgage offer may not always be available and you might need to reapply for a new mortgage offer. This may incur application fees.
The problem that you may encounter is that if your personal situation has changed, you might not be able to get another mortgage offer. If the valuation report needs to be carried out again, the new house might not be valued at the same price as in the original valuation report and therefore the amount of the mortgage that you are able to obtain might be less than the original mortgage offer based on the loan to value criteria used by the lender. You would have to make up the difference from your own funds.
If you are able to obtain a mortgage offer you may find some of the terms unacceptable such as the interest rate applicable or the new mortgage offer might have conditions in the mortgage offer that you cannot comply with and are not preferential.
As you have exchanged with the developer, you would either have to accept the terms of the mortgage offer and comply with the conditions or withdraw from the purchase. You would then be at risk of forfeiting your deposit and the developer could sue you for loss. If you have a sale you would be obliged to complete on your sale and you have to find somewhere to live.
In the event of delays
Delays with the construction of new houses is quite common and we would strongly recommend that before you exchange contracts on a new build property and commit yourself to the purchase, that you liaise with your mortgage broker and/or mortgage company to investigate the options open to you should your new property not be ready to complete before your mortgage offer expires.
If once you have exchanged contracts, it appears that your new house will not be completed by the time that your mortgage offer expires you should contact your mortgage broker and lender as soon as you are aware of a potential delay in order that they can take the appropriate action.
If you require further advice about buying a newbuild property Talk to Tollers, whether you are buying or selling a home our friendly team can help.